Blue Label tanks as Cell C defaults on R2.7 billion loan

Shares in Blue Label Telecoms crashed 12% on Tuesday (28 January 2020), after mobile operator Cell C said it has defaulted on the payment of interest on a $184 million (R2.7 billion) note which was due in December 2019.

Additionally, it has defaulted on interest and capital repayments related to the respective bilateral loan facilities between Cell C and Nedbank Limited, China Development Bank Corporation, Development Bank of Southern Africa Limited and Industrial and Commercial Bank of China Limited which was due in January 2020.

“Currently, none of the bilateral loan facilities have been accelerated as noteholders are aware and support that Cell C is committed to resolving the situation by agreeing to restructuring terms with its lenders while it also continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness,” Blue Label said in a note to shareholders.

By 12h45 on Tuesday, Blue Label’s shares were trading 12% lower at R2.80.

Cell C’s S&P Global status on certain loan facilities and senior secured bonds is currently at D (Default).

According to the mobile operator, the suspension of payments “is part of the wider Cell C initiatives to improve liquidity and to restructure the company’s balance sheet”.

“Cell C continues to work proactively with all stakeholders to improve its liquidity, debt profile and long-term competitiveness as part of its turnaround strategy,” it said.

It said that, as announced in November (18 Nov 2019), the group has entered into an extended roaming agreement with MTN, to better control its capital expenditure and operating costs.

This agreement will drive efficiencies in the delivery of services to consumers and supports South Africa’s policy goals of avoiding network duplication, it said.

The expanded roaming agreement together with a recapitalisation transaction are part of  Cell C’s turnaround strategy.

Cell C CEO, Douglas Craigie Stevenson said: “Our turnaround strategy is to ensure operational efficiencies, restructure the balance sheet, implement a revised network strategy and improve overall liquidity. We continue to engage with all stakeholders throughout this process and believe we have made good progress.”

The group said it will provide further information (including a timeframe for publication of its year-end 2018 audited financial statements) in due course.

Financial performance

Earlier in January, Blue Label notified shareholders that it expects its earnings for the current half-year period to be more than 20% higher, following its decision to fully impair its exposure to Cell C in 2019.

In September 2019, the company reported a decline in earnings for the year ended May 2019, including a 3% drop in group revenue to R25.9 billion as losses incurred by Cell C weighed.

Losses at Cell C amounted to R3.6 billion, while Oxigen Services India lost R86.6 million, and Blue Label Mexico lost R24 million.

The group reported a headline loss of 312.49 cents per share, and a core headline loss of 304.77 cents per share.

Earnings per share and headline earnings per share decreased from 131.13 and 130.44 cents per share to negative 727.81 and negative 312.40 cents per share respectively. Net asset value per share decreased from R10.88 to R2.59.

Although the core businesses of the Blue Label Group continued to generate profit, the predominant negative contributions to group earnings were attributable to Cell C’s trading losses, among other factors.

In an interview after the results were published, Blue Label Telecom co-chief executive officer Brett Levy admitted that the company’s investment into Cell C was a bad move for the group, but he remained hopeful that the operator can turn things around.

When Blue Label acquired its stake in Cell C in August 2017, the group’s share price was sitting around R16.50. In the two years that followed, it had fallen 84% to R2.60 at the time of its annual results.

Read: Blue Label signals earnings boost after Cell C write down

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Blue Label tanks as Cell C defaults on R2.7 billion loan